Snapshot Summary…

Global FX: Dollar remains firm, supported by hawkish Fed Chair Jerome Powell speech at Jackson Hole Symposium

Global Rates: UST Yields Closed Mixed While Bund Saw Weaker Sentiment

MYR Bonds: MGS market was lacking in direction whilst trading volume was light along the benchmark papers

USD/MYR: Ringgit was aided by risk appetite, but gains were subdued ahead of Powell Speech overnight

Macro News

United States: In August 2023, the University of Michigan's US inflation expectations for the coming year were adjusted upwards to 3.5% from the initial estimate of 3.3%, surpassing July's 3.4%. For the five-year projection, the expectations were marginally increased to 3% in August 2023, compared to the preliminary of 2.9%, aligning with July's figures. On monetary policy, Federal Reserve Chair Jerome Powell emphasised the need for increased vigilance against inflation and suggested the possibility of more interest rate hikes. While acknowledging progress, Powell highlighted that inflation remains higher than desired. He expressed the Fed's cautious approach and flexibility in future decisions, indicating a reluctance to ease monetary policy anytime soon.

Malaysia: Malaysia's headline inflation continues its downward trend. The latest reading in July 2023 was 2.0% y/y (June 2023: 2.4% y/y), bringing the year-to-date inflation to 3.0% (2022: 3.4%). Core inflation, which excludes volatile items and controlled prices, also eased to 2.8% y/y in July 2023 (June 2023: 3.1% y/y). On a year-to-date basis, core inflation stood at 3.5% (2022: 3.0%). Within the CPI basket, most of the major items are experiencing a disinflationary trend throughout the year, including food items, and restaurants & hotels. Exception, however, is on education inflation due to higher pre-primary & primary education.

Fixed Income

Global bonds: US Treasuries closed sideways where losses were found on shorter tenors versus modest gains on longer tenors. The 10Y UST ended Friday relatively unchanged at 4.24% and longer 30Y edged down 2 bps to close at 4.28%. The short tenor 2Y UST rose 5 bps to end the week above the 5% level. Yields were pressed down on longer tenors after Japan’s Tokyo CPI at 2.8%, marking the slowest rate in almost a year. Short tenor losses occurred after chair Jerome Powell’s remarks at the Jackson Hole Symposium that the Fed is ready to raise rates and hold it at a high level until inflation show sign of slowing towards Fed’s 2% target. Meanwhile, Germany’s 2Q2023 GDP was 0% q/q and contracting 0.2% y/y. Japan bond yields rose slightly after the Tokyo CPI release.

MYR Government Bonds: MGS market was lacking in direction whilst trading volume was light along the benchmark papers on Friday, as market players were on the side line ahead of scheduled Fed Powell speech for Jackson Hole Symposium. The 10Y MGS closed 0.3 bps higher at 3.85% on less than MYR30 million traded. BNM announced details for the 15Y MGS (MGS 06/38) reopening auction at MYR3.0 billion size on top of MYR1.0 billion private placement. The release of Malaysia CPI did little to push for more MGS gains, seeing that slowing pace of inflation for July was largely anticipated.

MYR Corporate Bonds: Further strength was seen on Friday in the MYR corporate bonds market. AA segment led activity on Friday with net buying interest seen on bank papers. At the same time, real estate papers by Pujian Bayu 07/30 and 07/31 made their debut on RM30 million and RM10 million volume traded, respectively.

Forex

US: US dollar was supported above the 104 level as the Fed Chair Jerome Powell remarked at Jackson Hole signalling the Fed may hike interest rates to direct US inflation towards the Fed’s target. However, Powell also warned there is uncertainty for the US economy which requires the Fed to be ‘agile’ in policy direction.

Europe: EUR/USD and GBP/USD were pressured downward against the firm US dollar post Powell’s comments and the less-than-encouraging German GDP data. ECB official Joachim Nagel denied reports the ECB is considering a pause at the September policy meeting while policymaker Mario Centeno said ECB will be cautious at the next meeting amid signs of decelerating inflation. At Jackson Hole, ECB President Christine Lagarde merely said rates in Europe will need to stay high “as long as necessary” amid the still-high inflation. At the same time, hawkish BoE’s official remarks during Jackson Hole also could not provide support for the GBP. BoE Deputy Governor Ben Broadbent warned that the interest rate will be maintained at high level for longer duration as inflation pressure is not dissipating quickly despite the drop in gas and producer inflation.

Asia-Pacific: Reuters reported that PBOC requested the domestic lenders to ‘scale back’ outward bond investments. Nevertheless, CNY remained weak near the 7.290 level on Friday ahead of Powell’s speech. At the same time, JPY also weakened against USD with the pair was at its highest level since last November. The lower-than-expected Tokyo core CPI reading at 2.8% y/y (consensus: 2.9%) put some doubts on the sustainable 2.0% inflation targeting by the BoJ. In addition, the central bank chief Kazuo Ueda said that officials will continue with their current strategy as underlying inflation is deemed still below 2.0% target. The JPY weakened 0.4% to close at 146.44.

MYR: MYR closed firmer by 0.1% on Friday, aided by hints of risk appetite though sentiment was also guarded ahead of Powell’s speech and release of slowing Malaysia CPI data. The day before, Fed officials’ comments were relatively mixed with regards to policy direction.

Other Markets

Gold: Gold price fell slightly last Friday whilst the US dollar and UST yields rose after markets heard the comments from Fed chief Powell. Gold logged 0.1% drop to settle at USD1,915/oz.

Crude Oil: Global oil prices rose on Friday, aided by surged by 5% rise in US diesel prices which was due to worries about incoming shortages ahead of maintenance schedules, especially there was a fire at a refinery in Louisiana and decline in US oil rigs.

FBM KLCI: KLCI ended Friday on slightly lower note and completing an overall weaker week amid absence of greater global risk appetite ahead of central bankers’ comments at end of the week. On Friday, the KLCI fell 0.26 points to close at 1,444. Foreign investors were the net buyers of Malaysian stocks at RM54.4 million.

US Equities: US equities ended higher in a volatile session on Friday, as investors heard the Powell’s indication of a possible rate hike but were also wary as Powell also said growth risks also remain. The Dow Jones rose 0.7%, S&P500 rose 0.7% and Nasdaq climbed 0.9%.

Source: AmInvest Research - 28 Aug 2023